Process: 139/2015-T

Date: July 1, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (Process 139/2015-T) addresses the controversial application of Stamp Duty under item 28.1 of the General Stamp Duty Table (TGIS) to buildings held in vertical property with mixed residential and commercial use. The claimant company owned a building with 21 independent divisions, including 14 residential units with a combined taxable value of €1,912,470. The Tax Authority assessed Stamp Duty at 1% on the aggregate value of all residential divisions. The company challenged this, arguing that item 28.1 targets luxury properties and should apply only when individual divisions exceed €1,000,000 in value. The claimant contended that independent divisions in vertical property should be treated like autonomous fractions in horizontal property for tax purposes, with each assessed separately. The Tax Authority defended its position by emphasizing the legal distinction between vertical property (one single property with divisible parts) and horizontal property (multiple autonomous fractions). According to the AT, the relevant taxable value for Stamp Duty purposes is the total value of the property, not individual divisions. The claimant also raised constitutional concerns, alleging violations of equity, legality, and proportionality principles. This case highlights critical interpretive questions about property classification, tax base determination for vertically-owned buildings, and whether corporate ownership affects the luxury property characterization underlying item 28.1 of the TGIS.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. On 27 February 2015, the commercial company A…, Lda., NIPC …, with registered office at Avenue …, no. …, …, Lisbon (hereinafter, Claimant), submitted a request for the establishment of an arbitral tribunal, pursuant to the combined provisions of Articles 2, no. 1, subparagraph a), and 10, nos. 1, subparagraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality and annulment of the assessment acts for the 3rd (third) instalment of Stamp Duty, levied under item 28.1 of the General Table of the Stamp Duty Code (hereinafter, TGIS), with reference to the year 2013 and the urban property registered under article … in the urban property register of the parish of …, municipality and district of Lisbon, property of the Claimant.

The Claimant attached 15 (fifteen) documents, having not listed witnesses nor requested the production of any other evidence.

The Respondent is the AT – Tax and Customs Authority (hereinafter, Respondent or AT).

In essence and in brief summary, the Claimant made the following allegations:

The Claimant is the owner of the urban property in absolute ownership with storeys or divisions susceptible to independent use, located at Avenue …, nos. …, …, parish of …, municipality of Lisbon, registered in the respective urban property register under article …, which comprises 21 divisions susceptible to independent use, of which 14 have residential purpose, having been attributed, in 2013, a global taxable property value of € 3,075,530.00, with the total taxable property value corresponding to the divisions with independent use for residential purposes being € 1,912,470.00.

The AT levied Stamp Duty on the 14 divisions with independent use for residential purposes, having regard to their total taxable property value (€ 1,912,470.00), by application of item 28.1 of the TGIS, in the wording given to it by Article 4 of Law no. 55-A/2012, of 29 October, at the rate of 1% provided for in sub-subparagraph i) of subparagraph f) of no. 1 of Article 6 of the same law.

According to the Claimant, with the creation of item 28.1 of the TGIS, the legislator intended to tax real property of high value or luxury, which is why that rule of liability encompasses only properties with residential purpose and not properties with mixed purpose.

In the concrete case, since the property in question is owned by a legal entity, its residential purpose may only occur if the same is leased, not being a matter of its use as an outward display of wealth or luxury, and therefore the same falls outside the scope of application of item 28.1 of the TGIS.

On the other hand, to the registration of properties in absolute ownership with storeys or divisions with independent use, pursuant to the CIMI, the same registration rules apply to properties constituted in horizontal ownership, and thus the IMI and Stamp Duty are levied individually with respect to each of the divisions. Neither from Article 2 of the CIMI, which defines the concept of property, nor from Article 38 of the same legal code, relating to the determination of taxable property value, does any distinction result as to the registration situation of the property, that is, whether it is in absolute ownership or horizontal ownership.

In the concrete situation, the AT issued Stamp Duty assessments for each division susceptible to independent use with residential purpose, as it would if the property were constituted in horizontal ownership; however, for purposes of the tax liability it took into account the global taxable property value of the property, instead of considering the taxable property value of each independent division. However, liability to Stamp Duty should have been determined not by the global taxable property value of the property, but by the taxable property value of these independent divisions; now, since the taxable property value of each of these independent divisions is less than € 1,000,000.00, item 28.1 of the TGIS should not have been applied thereto.

Furthermore, according to the Claimant, the interpretation and application that the AT makes of the rule of liability of item 28.1 of the TGIS is unconstitutional and arbitrary in that it constitutes a violation of the principle of equity, the principle of fiscal legality, provided for in no. 2 of Article 103 of the CRP, as well as the principles of justice, equality and fiscal proportionality, also provided for in the CRP.

The Claimant concludes the request for arbitral decision by petitioning that be "declared illegal and annulled the Stamp Duty assessment notices hereby contested, with all legal consequences".

  1. The request for the establishment of an arbitral tribunal was accepted and automatically notified to the AT on 6 March 2015.

  2. The Claimant did not proceed with the appointment of an arbitrator, and therefore, pursuant to the provisions of no. 1 of Article 6 and subparagraph a) of no. 1 of Article 11 of the RJAT, the President of the Ethics Council of CAAD designated the undersigned as arbitrator of the singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable period.

  3. On 21 April 2015, the parties were duly notified of this designation, having not expressed willingness to challenge the appointment of the arbitrator, pursuant to the combined provisions of Article 11, no. 1, subparagraphs b) and c), of the RJAT and Articles 6 and 7 of the Ethics Code of CAAD.

  4. Thus, in accordance with the provision contained in subparagraph c) of no. 1 of Article 11 of the RJAT, the singular Arbitral Tribunal was constituted on 7 May 2015.

  5. On 22 June 2015, the Respondent, duly notified for that purpose, submitted its Defence in which it contested, specifically, the arguments put forward by the Claimant and concluded in favor of the inadmissibility of the present action, with its consequent dismissal of the claim.

The Respondent attached no documents nor requested the production of any other evidence.

The Respondent did not attach to the proceedings the administrative file as the same only consisted of the tax acts in question in this proceeding, with the documents embodying them having been entirely carried into the proceedings by the Claimant, together with the request for arbitral decision, these having been considered true and, therefore, accepted by the AT.

In essence and also in brief form, it is important to extract the most relevant arguments on which the Respondent based its contestation:

The concept of property is defined in Article 2, no. 1, of the CIMI, with it being established in its no. 4 that, in the regime of horizontal ownership, each autonomous fraction is regarded as constituting a property. Therefore, a property in absolute ownership with storeys or divisions susceptible to independent use is, unequivocally, different from a property in horizontal ownership regime, constituted by autonomous fractions, that is, multiple properties.

Thus, the Claimant, for purposes of IMI and also of Stamp Duty, is not the owner of 21 autonomous fractions, but rather of a single property.

The unity of the urban property in absolute ownership composed of several storeys or divisions is not – states the Respondent – affected by the fact that all or part of these storeys or divisions are susceptible to independent economic use. Such a property does not, by that fact, cease to be only one, and therefore its juridically distinct parts cannot be equated to autonomous fractions in horizontal ownership regime.

The taxable property value relevant for purposes of the application of item 28 of the TGIS is, therefore – in the Respondent's understanding – the total taxable property value of the urban property and not the taxable property value of each of the parts that comprise it, even when susceptible to independent use.

On another consideration, the AT understands that the provision of item 28.1 of the TGIS does not constitute any violation of the principle of equality, with there being no discrimination in the taxation of properties constituted in horizontal ownership and properties in absolute ownership with storeys or divisions susceptible to independent use.

Horizontal ownership and absolute ownership are different legal institutions and tax law respects them. Consequently, the different valuation and taxation of a property in absolute ownership as opposed to a property constituted in horizontal ownership arises from the different legal effects inherent to these two figures.

The Respondent further states that the registration of each part susceptible to independent use is not autonomous, per registry, but is included in a description in the register of the property in its entirety.

It is thus the understanding of the Respondent that to apply, by analogy, to the property of the Claimant the regime of horizontal ownership, considering that each one of the fractions susceptible to independent use constitutes a property, would not be interpreting the norms of the CIMI and, as a consequence, those of the CIS, but rather subverting the entire legal regime established therein.

In this framework, the Respondent concludes by saying that the tax acts in question did not violate any legal or constitutional provision, and therefore should be maintained.

  1. On 22 June 2015, an order was issued dispensing with the convening of the meeting referred to in Article 18 of the RJAT, as well as with the production of submissions.

II. PRELIMINARY ASSESSMENT

The Arbitral Tribunal was regularly constituted and is competent.

The proceedings do not suffer from any nullities.

The parties have legal personality and legal capacity, are duly represented, and are legitimate.

The joinder of claims is admitted – there are multiple tax assessment acts in question, with the annulment of each of them being sought – in virtue of it being verified that the success of the claims formulated by the Claimant depends essentially on the assessment of the same factual circumstances – rooted in the Claimant's ownership of an urban property in absolute ownership with storeys or divisions susceptible to independent use – and the interpretation and application of the same principles or rules of law – in casu, item 28.1 of the TGIS (cf. Article 3, no. 1, of the RJAT).

There are no exceptions or other preliminary issues that prevent the examination of the merits or that require to be examined.

III. GROUNDS

III.1. FACTUAL GROUNDS

§1. FACTS ESTABLISHED

With regard to factual matters, it is important, first and foremost, to note that the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish established facts from unestablished facts (cf. Article 123, no. 2, of the CPPT and Article 607, nos. 3 and 4, of the CPC, applicable ex vi Article 29, no. 1, subparagraphs a) and e), of the RJAT). In this way, the facts pertinent to the judgment of the case are chosen and determined in function of their legal relevance, which is established in consideration of the various plausible solutions of the question(s) of Law.

Within this framework, having regard, in particular, to the positions assumed by the parties and the documentary evidence produced, the following facts with relevance for the decision are considered established:

  1. In the year 2013, the Claimant was the owner of the urban property, in absolute ownership with storeys or divisions susceptible to independent use, located at Avenue …, nos. …, … and …, parish of …, municipality and district of Lisbon, registered in the respective urban property register under article … – cf. Article 2 of the PI (factuality accepted by agreement).

  2. The aforementioned urban property is composed of 11 (eleven) storeys and 21 (twenty-one) storeys or divisions susceptible to independent use, of which 14 (fourteen) are for residential purposes, having been assigned, in 2013, a global taxable property value of € 3,075,530.00, with the total taxable property value corresponding to the storeys or divisions susceptible to independent use for residential purposes being € 1,912,470.00 – cf. Articles 3 and 4 of the PI and document no. 15 attached thereto (factuality accepted by agreement).

  3. Each one of the storeys or divisions susceptible to independent use that integrate that same urban property have their own taxable property value, determined pursuant to the IMI Code, with the storeys or divisions with independent use for residential purposes having been assigned, in 2013, the following individual taxable property values, all less than € 1,000,000.00 – cf. documents nos. 1 to 15 attached to the PI (factuality accepted by agreement):

[TABLE OF PROPERTIES WITH VALUES]

  1. The Claimant was notified of the Stamp Duty assessments discriminated below, in the total amount of € 6,374.82, all relating to the year 2013 and concerning the storeys or divisions with independent use for residential purposes, integrated in the urban property identified above in established fact 1 – cf. Article 1 of the PI and documents nos. 1 to 14 attached thereto (factuality accepted by agreement):

[TABLE OF ASSESSMENTS WITH AMOUNTS AND DATES]

  1. The Stamp Duty assessments discriminated in the preceding established fact result from the application of item 28.1 of the TGIS to all and each one of the storeys or divisions with independent use referenced therein, integrated in the urban property identified in established fact 1 – cf. Article 5 of the PI and documents nos. 1 to 14 attached thereto (factuality accepted by agreement).

  2. The period for voluntary payment of the amounts corresponding to the Stamp Duty assessments mentioned in established fact 4 ended in November/2014 – cf. documents nos. 1 to 14 attached to the PI.

  3. On 27 February 2015, the Claimant submitted the request for the establishment of an arbitral tribunal that gave rise to the present proceedings – cf. CAAD case management information system.

§2. FACTS NOT ESTABLISHED

With relevance to the assessment and decision of the case, there are no facts that were not established.

§3. GROUNDS REGARDING FACTUAL MATTERS

With regard to the established factual matters, the conviction of the Tribunal was based on the statements made in the pleadings, in the points indicated, in which the accuracy thereof was not disputed, and on the documents attached to the proceedings, referenced in relation to each of the points, the correspondence of which with reality was not challenged.

III.2. LEGAL GROUNDS

In essence, this Arbitral Tribunal is called upon to decide the question of taxation, under Stamp Duty, in the case of urban properties with a global taxable property value exceeding one million euros, composed of storeys or divisions susceptible to independent use, some for residential purposes, which when individually considered do not amount to a taxable property value (VPT) exceeding one million euros.

Let us therefore examine the question.

Article 4 of Law no. 55-A/2012, of 29 October, added to the General Table of Stamp Duty, annexed to the Stamp Duty Code, approved by Law no. 150/99, of 11 September, item 28, with the following wording [as amended by the State Budget Law for 2014 (cf. Article 194 of Law no. 83-C/2013, of 31.12)]:

"28 — Ownership, usufruct or right of superficies of urban properties whose taxable property value recorded in the register, pursuant to the Code of Municipal Tax on Real Property (CIMI), is equal to or greater than € 1,000,000 — on the taxable property value used for the purposes of IMI:

28.1 — For residential property or land for construction the building of which, authorized or planned, is for residential purposes, pursuant to the provision in the Code of IMI — 1%;

28.2 — For property, when the liable parties that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, recorded in the list approved by ordinance of the Minister of Finance — 7.5%."

Now, both in item 28 of the TGIS and in Article 6 of Law no. 55-A/2012, of 29 October, an innovative concept was used that is not used by any other tax legislation: the concept of property with residential purpose.

Nor is any such concept used in the CIMI, indicated by the aforementioned Law no. 55-A/2012 as the diploma of subsidiary application in relation to the tax introduced by the addition of item 28 to the TGIS.

Indeed, the CIMI defines the concept of property, determines the various types of properties and identifies the species of urban properties.

Under Article 2 of the CIMI, "property is any portion of territory, encompassing waters, plantations, buildings and constructions of any nature therein incorporated or affixed, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value".

No. 4 of the cited Article 2 expressly provides that each autonomous fraction, in horizontal ownership regime, is regarded as constituting a property.

Properties are divided into rural (Article 3), urban (Article 4) or mixed (Article 5), with urban properties in turn subdivided into four species: residential; commercial, industrial or for services; land for construction and others (Article 6).

In turn, no. 2 of Article 6 of the CIMI clarifies that "residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of license, which have as their normal destination each of these purposes".

From the combined analysis of the aforementioned provisions it is verified that the CIMI makes no distinction between properties constituted in horizontal ownership or absolute ownership regime. Indeed, although no. 4 of Article 2 expressly refers to autonomous fractions of properties constituted in horizontal ownership regime constituting, each one of them, a property, the truth is that it does not exclude from such classification the divisions with independent use of properties constituted in absolute or vertical ownership regime.

And, where the law has not made a distinction, the interpreter cannot do so.

Having therefore analyzed the definition of property contained in no. 1 of Article 2 of the CIMI, we do not discern any reason not to include therein the divisions with independent use of properties constituted in absolute ownership regime, as these constitute a portion of territory that forms an integral part of the patrimony of a natural or legal person and which has economic value.

It should be noted that to each one of those divisions or fractions a taxable property value is assigned.

It being established that the divisions with independent use of properties constituted in absolute ownership regime are to be classified as properties, pursuant to the terms and for the purposes of the CIMI, it appears evident to us that each one of these divisions, when that is the purpose to which they are destined, constitute properties with residential purpose, which moreover is a matter on which diverse arbitral case law has already focused and to which reference will be made hereinafter.

"Property with residential purpose" cannot, in fact, have any other meaning than the act of giving to a determined property (or fraction) the destination of residence.

Lastly, having regard to the provision in no. 2 of Article 6 of the CIMI, which invokes the notion of "normal destination" of the property, it appears there are no remaining doubts about the identity, notwithstanding the terminological divergence, between the concepts of "residential property" and "property with residential purpose".

In the case at hand, as results from the established facts, each one of the divisions of the urban property in question are susceptible to independent use, with 14 (fourteen) of those divisions being for residential purposes (cf. above established fact 2).

Indeed, were it not the case that the divisions in question in the present proceedings were individually classified as "properties" it would have no sense or logic for the preparation, in this case, of a Stamp Duty assessment note for each one of these units (as results from the established facts, the Stamp Duty assessments at issue, relating to the year 2013, resulted from application by the AT of Article 1, no. 1, of the CIS, combined with item 28.1 of the TGIS and Article 6 of Law no. 55-A/2012, of 29 October).

It is true that the subsidiary application of the CIMI could inculcate the idea that only autonomous fractions, in horizontal ownership regime, are regarded as properties in the light of the provision in Article 2, no. 4, of the CIMI.

However, if one attends to the wording of the cited Article 2, no. 4, one immediately verifies that the condition for the constitution of horizontal ownership regime is only necessary for purposes of taxation under IMI.

It should be noted, on the other hand, that, in light of the provision in Article 12, no. 3, of the CIMI, "each storey or part of the property susceptible to independent use is considered separately in the registration, which also discriminates the respective taxable property value".

Furthermore and with regard to the spirit of the law, it is important to note that, as has been increasingly defended by the most recent arbitral case law and which is closely followed here, the introduction of item 28 in the TGIS had as its objective the taxation of urban properties of high value with residential purpose, taxing the wealth, externalized in the ownership, usufruct or right of superficies, of urban properties "of luxury", or their autonomous fractions or divisions, with residential purpose [cf. the decisions rendered in proceedings nos. 50/2013-T, 132/2013-T, 132/2013-T, 181/2013-T, 182/2013-T, 183/2013-T, 185/2013-T, 100/2014-T, 238/2014-T, 290/2014-T, 428/2014-T, 707/2014-T and 756/2014-T, all available at www.caad.org.pt].

It should also be emphasized that where there exist (or could exist) in the same building, fractions (in horizontal ownership or not), with purpose different or other than residential, the purpose sought by item 28.1 will only be achieved when each one of the fractions individually has a taxable property value exceeding € 1,000,000.00.

Indeed, as results from the analysis of the discussion of Bill no. 96/XII in the National Assembly (DAR, I Series, no. 9/XII/2, of 11.10.2012), the basis for the measure designated as special tax on high-value urban residential properties rests on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intensive way the holders of properties of high value intended for residence, applying the new special tax to houses with value equal to or exceeding one million euros.

Now, if the objective of the law was to adapt taxation under Stamp Duty to the taxpaying capacity of taxpayers, it seems not to bear any relevance the distinction between properties constituted in horizontal ownership or absolute ownership regime.

Indeed, one does not discern how the ownership of certain divisions in a property in absolute ownership regime could mean greater wealth and greater taxpaying capacity than the ownership of the same number of fractions in a property in horizontal ownership regime.

Manifestly, it is not thereby that greater or lesser taxpaying capacity is revealed, all the more so as, as is known, horizontal ownership is a relatively recent legal institution, with it being certain that a large part of old properties are not even constituted in this regime, despite functioning as such in practice.

Now, the principle of the prevalence of substance over form requires that the AT should value the material truth. And, in the case at hand, the material truth consists in the non-existence of any substantive difference between the divisions owned by the Claimant and the fractions of a property constituted in horizontal ownership.

Or, put another way: since the constitution of horizontal ownership is merely a legal and not a factual operation, no reasons are discerned for differences in taxation on this basis, since what will always be relevant is the individual value of each one of the fractions, whether or not the property is constituted in horizontal ownership regime.

To distinguish, for the purpose of subjection or not to Stamp Duty, the autonomous fractions of properties constituted in horizontal ownership regime from the divisions with independent use of properties constituted in absolute ownership regime, represents a clear violation of the principles of justice, equality and fiscal proportionality, of material truth and taxpaying capacity, and therefore cannot be accepted.

Thus, the thesis defended by the Respondent that the fact that the property is not constituted in horizontal ownership regime prevents the application of its regime should fail.

In the case at hand, as results from the established facts, none of the divisions with independent use, or rather, none of the "properties" owned by the Claimant, has a taxable property value equal to or exceeding one million euros, and therefore these are not covered by the rule of liability provided for in item 28 of the TGIS.

In light of all that has been set forth, there are no doubts that the taxable property value relevant for purposes of the application of Stamp Duty in cases of properties constituted in absolute ownership regime, composed of several divisions with independent use, of which some are for residential purposes, is the taxable property value of each one of the divisions of the property and not, as defended by the Respondent, the global taxable property value of the property, corresponding to the sum of all the taxable property values of the divisions that compose it.

Within this framework, there being no legal basis for the aforementioned Stamp Duty assessment acts, their annulment is required in virtue of the same suffering from illegality, due to error in the legal prerequisites.

IV. DECISION

In accordance with the above, this Arbitral Tribunal decides:

a) To find in favor of the claim for a declaration of illegality of the following Stamp Duty assessments, due to error in the legal prerequisites, with their consequent annulment:

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 203.70;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 457.20;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16;

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16; and

  • assessment no. 2014 …, dated 17.03.2014, in the amount of € 476.16.

b) To order the Tax and Customs Authority to pay the costs of the present proceedings.

VALUE OF THE PROCEEDINGS

In accordance with the provisions of Articles 306, no. 2, of the CPC, 97-A, no. 1, subparagraph a), of the CPPT and 3, no. 2, of the Rules of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 6,374.82 (six thousand three hundred seventy-four euros and eighty-two cents).

COSTS

Pursuant to Article 22, no. 4, of the RJAT, the amount of costs is fixed at € 612.00 (six hundred twelve euros), pursuant to Table I annexed to the Rules of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 1 July 2015.

The Arbitrator,

(Ricardo Rodrigues Pereira)

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the TGIS apply to buildings held in vertical property (propriedade vertical) with mixed-use units?
Yes, Verba 28.1 of the TGIS can apply to buildings held in vertical property (propriedade vertical) that contain mixed-use units. In this case, the Tax Authority applied the Stamp Duty to the residential portions of a vertically-owned building, assessing the 14 residential divisions while excluding the commercial units. However, the application methodology is disputed: the Tax Authority considered the aggregate taxable value of all residential divisions (€1,912,470), while the taxpayer argued that only individual divisions exceeding €1,000,000 should be subject to this provision. The key controversy centers on whether vertical property should be treated as a single indivisible unit or as separate assessable divisions for Stamp Tax purposes under item 28.1.
How is the taxable value calculated under Imposto do Selo for vertical property buildings with independent housing units?
For vertical property buildings with independent housing units, the Tax Authority calculates the Imposto do Selo taxable value by aggregating the taxable property values of all residential divisions within the building. In the case analyzed, the AT summed the values of 14 residential divisions totaling €1,912,470 and applied the 1% Stamp Duty rate under item 28.1 TGIS. The taxpayer challenged this methodology, arguing that each independent division should be assessed individually based on its separate taxable property value, similar to autonomous fractions in horizontal property. Since each division valued below €1,000,000, the taxpayer contended item 28.1 should not apply. The Tax Authority countered that vertical property constitutes a single property unit under Article 2 of the CIMI, making the total property value the relevant tax base, not individual divisional values.
Can a legal entity owning a residential building challenge Stamp Tax assessments under Verba 28.1 through tax arbitration at CAAD?
Yes, a legal entity owning a residential building can challenge Stamp Tax assessments under Verba 28.1 through tax arbitration at CAAD (Centro de Arbitragem Administrativa). This case demonstrates that corporate owners have standing to contest Stamp Duty assessments through the arbitration framework established by Decree-Law 10/2011 (RJAT). The claimant company successfully initiated arbitration proceedings questioning both the technical application of item 28.1 and raising constitutional challenges regarding equity, legality, justice, equality, and proportionality principles. The company argued that since legal entities cannot use residential property for personal luxury display and can only derive residential purpose through leasing, the rationale behind item 28.1 (targeting high-value luxury properties) should not apply to corporate-owned buildings. This establishes an important precedent for corporate property owners seeking to challenge Stamp Duty assessments.
Are independent housing units in a vertical property building assessed individually or as a whole for Verba 28.1 Stamp Tax purposes?
The assessment methodology for independent housing units in vertical property buildings under Verba 28.1 is the central dispute in this case. The Tax Authority position is that vertical property buildings are assessed as a whole, calculating Stamp Duty based on the aggregate taxable value of all residential divisions within the single property unit. In contrast, the taxpayer argued that independent divisions should be assessed individually, similar to autonomous fractions in horizontal property, with item 28.1 applying only when individual units exceed €1,000,000. The Tax Authority justified the aggregate approach by citing Article 2 of the CIMI, which distinguishes vertical property (one property with divisible parts) from horizontal property (multiple autonomous fractions as separate properties). The taxpayer countered that registration rules and IMI assessment practices treat independent divisions similarly regardless of vertical or horizontal ownership structure, arguing for consistent tax treatment across both property regimes.
What is the distinction between horizontal and vertical property for Imposto do Selo incidence under the TGIS?
The distinction between horizontal and vertical property for Imposto do Selo under TGIS is fundamental to this dispute. Horizontal property (propriedade horizontal) consists of autonomous fractions, each constituting a separate property under Article 2(4) of the CIMI, with independent registration, ownership, and tax assessment. Vertical property (propriedade vertical or absolute ownership) is legally one single property that may contain multiple storeys or divisions susceptible to independent use, but these divisions do not constitute separate properties. The Tax Authority argues this distinction is decisive for Stamp Duty: horizontal property units are assessed individually under item 28.1, while vertical property is assessed as a unified whole. The taxpayer challenged this interpretation, arguing that independent divisions in vertical property should receive equivalent tax treatment to horizontal fractions when they have separate registrations and independent economic use capability. This distinction has significant implications, as aggregate assessment can trigger item 28.1 taxation where individual assessment would not.